BILL ANALYSIS Ó
AB 556
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Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION
Mike Gatto, Chair
AB 556
(Irwin) - As Amended April 7, 2015
SUBJECT: Trusts: regulation and enforcement
SUMMARY: Expands the definition of a "commercial fundraiser for
charitable purposes" in order to strengthen the Attorney
General's (AG) ability to enforce disclosure requirements for
charity fundraisers, and establishes a ten-year statute of
limitations for enforcement actions against charity fundraisers,
consultants and other third parties who engage in fraud or
prohibited conduct. Specifically, this bill:
1)Expands the definition of "commercial fundraiser for
charitable purposes" to include any person or entity that
plans, manages, advises, counsels, consults, or prepares
material for, or with respect to, the solicitation of funds,
assets, or property for charitable purposes and is compensated
by a percentage interest in the funds, assets, or property
received through a solicitation campaign, rather than by a
flat fee.
2)Expands the definition of "commercial fundraiser for
charitable purposes" to include any person or entity that
plans, manages, advises, counsels, consults, or prepares
material for, or with respect to, the solicitation in this
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state of funds, assets, or property for charitable purposes
and:
a) Has any ownership or management interest in any other
entity that receives or controls the funds, assets, or
property solicited for charitable purposes; or
b) Receives any material financial benefit, directly or
indirectly, from any other individual or entity that
receives or controls the funds, assets, or property
solicited for charitable purposes, other than the nonprofit
soliciting the funds, assets, or property for charitable
purposes.
3)Exempts from the definition of "commercial fundraiser for
charitable purposes" certain specified individuals, including,
among others, trustees; charitable corporations; employees or
agents of commercial fundraisers, and any attorney, investment
counselor, or banker who in the conduct of that person's
profession advises a client when actually engaged in the
giving of legal, investment, or financial advice.
4)Clarifies that any person or entity who indirectly maintains
an interest in an escrow account into which solicited funds
are deposited, or who indirectly maintains access of the right
to access funds, assets, or property received by a caging
(i.e., direct mail fundraising) company as a result of a
solicitation, falls under the definition of "commercial
fundraiser for charitable purposes."
5)Establishes a 10-year statute of limitations for the AG to
bring a civil action to enforce this Act, as well as to
enforce existing anti-fraud statutes under Civil Code Sections
2223 and 2224.
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6)Provides that specified disclosures about fundraising counsel
that entities that solicit funds for charitable purposes with
the participation of fundraising counsel must make at the time
of solicitation shall be clear and conspicuous and appear in
at least 12-point type, if printed or presented
electronically.
EXISTING LAW:
1)Governs charitable corporations, trustees, commercial
fundraisers, fundraising counsel and commercial co-venturers
who solicit or hold property for charitable purposes through
the Supervision of Trustees and Fundraisers for Charitable
Purposes Act (Act), and generally provides the AG with
supervisory and enforcement powers over these entities.
(Government Code Section (GC) 12580 et seq.)
2)Requires commercial fundraisers and fundraising counsel, both
as defined, to register with the AG's Registry of Charitable
Trusts and to file an annual financial report of funds
solicited on behalf of each charitable purpose or
organization. (GC 12599, 12599.1)
3)Defines "commercial fundraiser for charitable purposes" to
mean any individual, corporation, unincorporated association,
or other legal entity, except as specified, who for
compensation does any of the following:
a) Solicits funds, assets, or property in this state for
charitable purposes;
b) As a result of a solicitation of funds, assets, or
property in this state for charitable purposes, receives or
controls the funds, assets, or property solicited for
charitable purposes; or
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c) Employs, procures, or engages any compensated person to
solicit, receive, or control funds, assets, or property for
charitable purposes. (GC 12599(a))
4)Requires, not less than 10 working days prior to commencement
of each solicitation campaign, the filing with the AG's
Registry of Charitable Trusts of a notice setting forth, among
other things, the person responsible for directing and
supervising the work of the commercial fundraiser under the
contract and the fundraising methods to be used. (GC
12599(h))
5)Requires a written contract between commercial fundraisers and
charities for each solicitation campaign or event containing,
among other things, a statement of charitable purposes of the
campaign or event; if the commercial fundraiser is to be paid
a fixed fee, a statement of the fee and a good faith estimate
of what percentage the fee will constitute of the total
collections; if the commercial fundraiser is to be paid a
percentage fee, a statement of the percentage of contributions
that the charity will receive; a requirement that all funds in
the control or custody of the commercial fundraiser be
deposited into the charity's bank or delivered to the charity
within five working days of receipt; and specified contract
termination provisions. (GC 12599(i))
6)Defines "fundraising counsel for charitable purposes" to mean
any individual, corporation, unincorporated association, or
other legal entity, except as provided, who is described by
all of the following:
a) For compensation plans, manages, advises, counsels,
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consults, or prepares material for, or with respect to, the
solicitation in this state of funds, assets, or property
for charitable purposes;
b) Does not solicit funds, assets, or property for
charitable purposes;
c) Does not receive or control funds, assets, or property
solicited for charitable purposes in this state; and
d) Does not employ, procure, or engage any compensated
person to solicit, receive, or control funds, assets, or
property for charitable purposes. (GC 12599.1(a).)
7)Requires fundraising counsel for charitable purposes to file
annually with the AG, a report listing each person,
corporation, unincorporated association, or other legal entity
for whom the fundraising counsel has performed any specified
services, and a statement certifying that the fundraising
counsel had a written contract with each listed person,
corporation, or other legal entity that complied with
specified requirements. (GC 12599.1(d))
8)Requires a written contract between a fundraising counsel for
charitable purposes and a charitable organization for each
service to be performed by the fundraising counsel for the
charitable organization that shall be available for inspection
by the AG. (GC 12599.1(f))
9)Requires any individual, corporation, or other legal entity
who for compensation solicits funds or other property in this
state for charitable purposes to disclose prior to an oral
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solicitation or sales solicitation made by direct personal
contact, radio, television, telephone, or over the Internet,
or at the same time as a written solicitation or sales
solicitation that a) the solicitation or sales solicitation is
being conducted by a commercial fundraiser for charitable
purposes, and b) the name of the commercial fundraiser for
charitable purposes as registered with the AG. (Business and
Professions Code Section 17510.85)
10)Provides for a 10-year statute of limitations for any action
brought by the AG against trustees or other persons holding
property in trust for charitable purposes or against any
charitable corporation or any director or officer thereof to
enforce a charitable trust or to impress property with a trust
for charitable purposes or to recover property or the proceeds
thereof for and on behalf of any charitable trust or
corporation. (GC 12596)
FISCAL EFFECT: Unknown
COMMENTS:
1)Purpose of this bill . This bill is intended to strengthen the
AG's ability to regulate charity fundraising campaigns by
closing a loophole in current law that allows third party
fundraisers hired as so-called "fundraising counsel" to avoid
disclosures about their fees that are currently required of
commercial fundraisers. The bill also strengthens the AG's
enforcement powers by extending the statute of limitations for
enforcement actions against charity fundraising firms and
other third parties who engage in fraud or prohibited conduct.
This measure sponsored by Attorney General Kamala Harris.
2)Author's statement . According to the author, "Existing law
regulates for-profit companies that raise money on behalf of a
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charity but keep a portion of the money raised as profit.
Companies that raise money on behalf of charitable
organizations, known as commercial fundraisers, are required
to disclose to donors that a paid professional fundraiser was
involved in the solicitation campaign. 'Fundraising counsel,'
persons or entities that plan, manage, or advise charities on
their charitable solicitations activities and receive a
portion of the funds raised, are not subject to the same
transparency requirements. In the recent charity enforcement
case brought by the AG's Charitable Trusts Section, People v.
Help Hospitalized Veterans, the cost of charitable fundraising
was 65 to 72 percent of the gross annual revenue received from
donors. Because the professional fundraisers were classified
as 'fundraising counsel,' Help Hospitalized Veterans was not
required to disclose to donors that paid professional
fundraisers were involved in the solicitation campaigns."
3)Charitable fundraising and AG oversight . According to the
2014 Causes Count report by CalNonprofits, there are more than
70,000 active 501(c)(3) public charities in California.
California's charitable organizations contribute 15 percent of
California's Gross State Product and employ nearly 1 million
people. Nonprofits are also generally highly trusted
institutions, with over 80 percent of Californians surveyed by
the Causes Count report stating that they are confident that
nonprofits act on the public's behalf and deliver quality
services.
The AG is responsible for regulating charities and the
professional fundraisers who solicit on their behalf. All
charitable trustees and fundraising professionals are required
to register and file annual financial disclosure reports with
the Registry of Charitable Trusts in the AG's office before
soliciting in California. The attorneys and auditors of the
AG's Charitable Trusts Section investigate and bring legal
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actions against charities, their officers and directors, and
fundraising professionals that misuse charitable assets or
engage in fraudulent fundraising practices.
4)Expanded definition of "commercial fundraiser for charitable
purposes ." This bill revises the definition of "commercial
fundraiser for charitable purposes" to ensure that companies
soliciting charitable donations as "fundraising counsel" must
register as commercial fundraisers. For-profit companies that
solicit money on behalf of charitable organizations but keep a
portion of the money raised as profit are currently regulated
as "commercial fundraisers." Commercial fundraisers have to
register with the AG, must identify themselves to donors by
their registered name, and must explain to donors that the
charitable solicitation is being conducted by a commercial
fundraiser. By contrast, "fundraising counsel" which help
plan, manage, or advise charities on their charitable
solicitations but do not directly engage in solicitations are
currently not subject to the same disclosure requirements.
According to the author, recent AG enforcement cases revealed
instances in which professional fundraisers who registered as
fundraising counsel rather than as commercial fundraisers in
order to avoid disclosing their identity to donors. This bill
revises the definition of "commercial fundraiser for
charitable purposes" to include an individual or business that
plans, manages, counsels, advises, or prepares material for
the solicitation of funds for charitable purposes if the fee
arrangement with the charity gives the person or business a
percentage of the funds raised - even if the fundraiser
neither directly solicits donors nor holds any funds raised
through the fundraising activities conducted. According to
the author's office, this will close the loophole in current
law and give the AG the ability to better protect the public
from charitable fundraising fraud.
5)Extension of statute of limitations . This bill extends the
statute of limitations for enforcement actions against charity
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fundraising firms and other third parties who engage in fraud
or prohibited conduct. While the AG has 10 years to bring
enforcement actions against trustees, officers, or directors
of a charitable organizations for fraud or other violations,
that 10-year statute of limitations does not extend to third
party fundraisers, consultants, or accountants. Instead they
are subject to either a three or four year statute of
limitations, depending on the cause of action. According to
the author's office, in a recent case, the AG was unable to
bring an action for fraud against the persons registered as
"fundraising counsel" because the three-year statute of
limitations had passed. This bill establishes a 10-year
statute of limitations for all persons or entities involved in
the fraud in order to be consistent with the 10-year statute
of limitations that applies to fraud cases involving directors
and officers of a charity.
6)Recent Amendments . Recent amendments to the bill removed
opposition by charities and nonprofit organizations. The
Direct Marketing Association (DMA) states it has proposed some
"non-substantive, clarifying amendments" to address its minor
remaining concerns.
7)Double-referral . This bill was double-referred to the
Assembly Judiciary Committee, where it was heard on April 14,
2015, and passed on a 10-0 vote.
REGISTERED SUPPORT / OPPOSITION:
Support
California Department of Justice
AB 556
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Wounded Warrior Project, Inc.
Opposition
None received.
Analysis Prepared by:Jennie Bretschneider / P. & C.P. / (916)
319-2200